[Federal Register Volume 65, Number 225 (Tuesday, November 21, 2000)]
[Notices]
[Pages 69982-69983]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29712]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-43539; International Series Release No. 1234; File No.
SR-Phlx-00-66]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. Relating to the
Narrowing of the Exercise Strike Price Interval for Foreign Currency
Options on the Euro
November 9, 2000.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 12, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Phlx. On October 20, 2000, the Phlx
submitted Amendment No. 1 to the proposed rule change.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 superseded the original filing in its
entirety. See letter from Richard S. Rudolph, Counsel, Phlx, to
Nancy J. Sanow, Assistant Director, Division of Market Regulation,
Commission, dated October 19, 2000.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Phlx proposes to revise its exercise strike price policy with
respect to foreign currency options on the Euro denominated in U.S.
dollars (``Euro FCOs'').\4\ The Phlx proposes to reduce the exercise
strike price interval of American and European style, standardized Euro
FCOs from 2 cents to 1 cents in all six expiration months.
---------------------------------------------------------------------------
\4\ The underlying currency is the Euro. The trading currency,
in which the strike price and premium are quoted, is the U.S.
dollar.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Phlx included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Phlx has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to reduce the exercise strike price
interval of American and European style, standardized Euro FCOs from
2 cents to 1 cents in all six expiration months. The Exchange's
exercise strike price interval policies are administered in accordance
with Phlx Rule 1012 (Series of Options Open for Trading). Pursuant to
Phlx Rule 1012, there are regular and month-end Euro FCO contracts
listed, with one, two, three, six, nine and twelve months until
expiration. Euro FCO contracts are currently listed at 2 cents
intervals, and have strike prices of 80, 82, 84, 86, 88 and 90 in all
of the six expiration months, as specified above. Under the proposal,
strike prices of 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, and 90 could
become available for trading.
The Exchange proposes to reduce the exercise strike price interval
of all Euro FCO series from 2 cents to 1 cents, due to the decrease in
the spot price of the Euro in terms of the U.S. dollar. In 1999, the
Euro was worth $1.18738. As of the date of this filing, the Euro was
worth only $.8544, a dramatic decline in the value of the Euro in terms
of the U.S. dollar.\5\
---------------------------------------------------------------------------
\5\ The Phlx previously traded options on the European Currency
Unit (``ECU''), but delisted the product in July 1997 due to lack of
open interest and trading activity. The Phlx reintroduced the ECU
options in May 1998 with a 2 cents strike price interval. See
Securities Exchange Act Release No. 39940 (April 30, 1998), 63 FR
25258 (May 7, 1998) (SR-Phlx-98-17). This provided investors with an
investment vehicle during the conversion from the ECU to the Euro,
which occurred in January 1999. The Phlx began trading the Euro FCO
in January 1999. Securities Exchange Act Release No. 40953 (Jan. 15,
1999), 64 FR 3734 (Jan. 25, 1999) (SR-Phlx-99-01).
---------------------------------------------------------------------------
The Phlx represents that the purpose of the proposed rule change is
to respond to customer demand for a narrower strike price interval due
to the decrease in the underlying price of the Euro. The Exchange
believes that the proposed rule change makes economic sense because a
narrower strike price interval in Euro FCOs would provide investors and
traders of the options with the ability to more closely tailor
investment strategies to the precise movement of the underlying
currency (i.e., the Euro). The Exchange notes that the Commission has
permitted narrower exercise strike price intervals with respect to
foreign currency options based on the market value of the respective
underlying security.\6\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 25685 (May 10,
1988), 53 FR 17524 (May 17, 1988) (Order approving narrower strike
price intervals with respect to foreign currency options on the
British pound denominated in U.S. dollars) (SR-Phlx-88-13);
Securities Exchange Act Release No. 35631 (April 20, 1995), 60 FR
20544 (April 26, 1995) (Order approving narrower strike price
interval with respect to foreign currency options on the French
franc denominated in U.S. dollars) (SR-Phlx-95-06).
---------------------------------------------------------------------------
Although the proposal makes available more foreign currency option
series, the Phlx's Options Floor Procedure Advice F-18, Selective
Quoting Facility (``SQF''), continues to apply. The Commission notes
that, based on the application of the SQF, generally only a foreign
currency option series that is designated by the Exchange as having an
``update strike'' would have its quotes made available for continuous
dissemination to the public throughout the trading day.\7\ The Phlx
represents that the SQF, implemented in 1994, was intended to reduce
the number of strike prices continuously being updated and
disseminated, thus resulting in more timely and accurate foreign
currency options quote displays. Therefore, the Exchange believes that
with the use of the SQF, the predicted increase in the number of Euro
FCO series should not adversely affect the Exchange's quote traffic and
computer processing capacity. The Exchange represents that it will
distribute a memorandum to all of its members and foreign currency
options participants notifying them of the change in the exercise
strike price interval for Euro FCO contracts,
[[Page 69983]]
effective as of the date of Commission approval of the proposed rule
change.\8\
---------------------------------------------------------------------------
\7\ See Phlx Rule 1012, Commentary .04.
\8\ Telephone conversation between Richard Rudolph, Counsel,
Phlx, and Hong-Anh Tran, Special Counsel, Division of Market
Regulation, Commission, October 25, 2000.
---------------------------------------------------------------------------
2. Statutory Basis
The Phlx believes that the proposed rule change is consistent with
Section 6 of the Act,\9\ and in particular Section 6(b)(5) thereof,\10\
in that it is designed to promote just and equitable principles of
trade by enabling investors and traders of Euro FCO contracts to manage
the foreign currency risks with respect to the Euro more effectively.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Phlx does not believe that the proposed rule change will impose
any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
The Phlx neither solicited nor received any written comments.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Phlx consents, the Commission will:
A. By order approve such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
Phlx. All submissions should refer to File No. SR-Phlx-00-66 and should
be submitted by December 12, 2000.
---------------------------------------------------------------------------
\11\ 17 CFR 200.30-3(a)(12).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\11\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-29712 Filed 11-20-00; 8:45 am]
BILLING CODE 8010-01-M